A new report on FTX is out detailing how SBF and co spent customer funds and how SBF is (reportedly) paying his lawyers (with customer funds), eyeball scanning Worldcoin is out, and other shenanigans.
New FTX report shows further details of misappropriated funds. FTX Sues Sam Bankman Fried and Former Executives
As usual, a new FTX report brings a whole load of new allegations. This time, how SBF and team misappropriated customer funds…
Lawyers for the new management of FTX have sued its founder SBF and three ex-executives for the $1 billion they allegedly misappropriated from client funds before the exchange collapsed. This misappropriation also allegedly involves former FTX trading head Caroline Ellison, who reportedly paid herself a $22.5 million bonus. The report also mentions a $1 million “bonus” offered to a Bahamian government official by SBF for a business licence.
Accusations include that SBF and a top as yet unnamed lawyer, referred to as “Attorney-1”, repeatedly lied to banks and auditors and falsified documents to hide insolvency. The lawyer in question is accused of facilitating and covering up the commingling of customer and corporate funds, falsifying documents, and providing false information to parties that included customers, banks, auditors, and investors. The lawyer allegedly produced a “backdated” payment agreement between FTX and Alameda, wet signed by Bankman-Fried to avoid a DocuSign timestamp.
FTX execs had already found a $10 billion cash deficit in March 2022, with this deficit hidden under a sham account titled “Korean Friend”.
Despite the number of issues, the new management of FTX is still considering relaunching the exchange. Potential buyers that have expressed interest include Nasdaq, BlackRock, and Robinhood. So far, the FTX Debtors have recovered $7 billion of the approximately $8.7 billion in customer-deposited funds that were misappropriated from the FTX.com exchange, so it’s unclear what benefit relaunching the exchange would bring when it’s unclear that anyone would trust it going forward.
SBF pleads not guilty to charges including fraud, money laundering, and campaign finance violations. We’ll see.
SBF is paying his defence lawyers with $10 million of misappropriated FTX funds
If the above isn’t enough, SBF is reportedly using misappropriated client funds to pay his defence lawyers.
A complaint filed by FTX’s new management alleges that SBF funded his defence via a “Bankman Gift Transfer.” This involved transferring $10 million from an FTX US exchange account to his own and then to his father, Stanford professor Joe Bankman. The document states,
“On information and belief, Bankman-Fried’s father has been using this “gift” to finance Bankman-Fried’s criminal defense.”
The legality of this financing approach raises questions. SBF is facing eight criminal charges in an October trial after the exchange crashed last November following a report that led to a customer withdrawal rush, which FTX could not fulfil, partly due to executive overspending.
SBF accused of intentionally leaking private diary of ex-girlfriend and CEO Caroline Ellison
TL;DR: Excerpts from FTX founder SBF’s former girlfriend and Alameda Research CEO Caroline Ellison’s diary were published in The New York Times. SBF is accused of intentionally leaking them and, in so doing, throwing his ex under the bus in a failed attempt to discredit her as a witness. The DOJ is now seeking a gag order.
Sam Bankman-Fried is facing accusations from prosecutors of attempting to discredit his ex-girlfriend and potential star witness, Caroline Ellison, ahead of his criminal trial. after excerpts from her diary were published in The New York Times. Prosecutors are claiming SBF intentionally leaked them to discredit her. They claim that:
“by selectively sharing certain private documents with the New York Times, the defendant is attempting to discredit a witness, cast Ellison in a poor light, and advance his defense through the press and outside the constraints of the courtroom and rules of evidence: that Ellison was a jilted lover who perpetrated these crimes alone.”
The complaint alleges that SBF attempted to sabotage a fair trial by releasing Ellison’s private writings and documents to the media. The documents included Ellison’s accounts of her struggles at Alameda Research, her breakup with SBF and her professional insecurities. The Department of Justice (DOJ) sees this as potentially damaging to the jury pool and could dissuade witnesses from testifying. They stated
“The defendant has sought to publicly discredit a government witness by sharing her personal writings with a reporter…such efforts have the potential to taint the jury pool, and could have a chilling effect on witnesses.”
The DOJ argues that Bankman-Fried’s actions essentially constitute witness harassment. They’re now seeking a gag order to prevent further information disclosure ahead of the trial.
These allegations won’t help SBF’s case. After his empire collapsed, resulting in seven lawsuits by December 2022, he is expected in court on October 2, facing various charges, including alleged fraud, illegal political donations, and bribes to the Chinese government.
FTX planned to purchase the Pacific island nation of Nauru to build an apocalypse bunker
SBF’s brother Gabrial was planning to buy a South Pacific island to serve as an “apocalypse bunker”, according to the latest FTX lawsuit documents. The island would serve to “ensure that most [effective altruists] survive” a catastrophic event where “50%-99.99% of people die.” The discussions also included a proposal to construct a “human genetic enhancement” lab, an obvious side business for a fraudulent crypto exchange? According to the lawsuit, Gabriel discussed buying the island nation of Nauru with an FTX Foundation officer.
The Pacific island, pictured above, is both vulnerable to climate change and known as a tax haven…
Terraform Labs appoints a new CEO from its existing team
Terraform Labs (the one that spectacularly collapsed losing investors $40 billion) has appointed a new CEO. Previously serving as the company’s COO and CFO, Amani plans to steer away from launching stablecoins and focus on other products. Amani said, “We have a vision for how we could salvage this, even though I think it’s going to be hard and it’s going to take a long time.” Do Kwon, who was recently arrested in Montenegro, remains Terra’s principal shareholder, and Amani has optimistically expressed hope that Kwon could clear his name. In the meantime, Terra will continue to operate without him. We’ll see.
Celsius Network reaches settlements to exit bankruptcy
According to recent court filings, bankrupt crypto lender Celsius Network has reached two settlements that should allow it to return customers’ assets and end its bankruptcy proceedings. These settlements, which relate to $78.2 billion in unsecured claims, will be evaluated by Judge Martin Glenn on August 10. An agreement that aims to resolve claims against Celsius management over accusations of fraud and misrepresentation proposes to give affected customers an extra 5% on their recoveries. The court documents state, “Any eligible Account Holder who does not opt out of the Settlement will receive a claim in the amount of 105% of their scheduled claim, which will supersede and extinguish any related Proofs of Claim filed by such Account Holder.” Customers can still maintain their rights to individually pursue Celsius if they choose to opt out of the settlement.
Sam Altman of OpenAI’s Worldcoin eyeball-scanning crypto project launches. A way of outsmarting AI or privacy and user freedom horror story?
Worldcoin, Sam Altman’s AI-integrated crypto venture, has launched its global eyeball-scanning identity verification tech and crypto token.
Their stated, ambitious aim is to get a crypto wallet on every human’s smartphone and use eyeball scanning to check every user is a unique human to ensure they only give out free crypto to everyone once. To do this, they have eyeball-scanning verification devices they call ‘Orbs’. The device scans a user’s iris to confirm their unique human identity, a measure Worldcoin says is necessary to distribute their currency, known as Worldcoin tokens.
Altman has long supported universal basic income (UBI) and sees it as a way to distribute the wealth created by AI fairly.
“UBI is interesting to me even without talking about AI… If we have a society rich enough to end poverty, then we have a moral obligation to find out how to do that” Sam Altman says.
Despite Worldcoin’s reassurances on privacy, some see the data collection as inherently risky, with concerns raised over the biometric data the Orb collects. The project has attracted its share of criticism. Twitter co-founder Jack Dorsey snubbed it as “cute”. It’s also attracted many privacy fears, including the “spectacularly and inherently risky” nature of collecting biometric data on everyone on Earth.
In April of 2022, the MIT Technology Report published a scathing 7,000-word feature titled “Deception, exploited workers, and cash handouts: How Worldcoin recruited its first half a million test users.” The writers argued that despite the project’s lofty ambitions, “so far all it’s done is build a biometric database from the bodies of the poor” adding “We found that the company’s representatives used deceptive marketing practises, collected more personal data than they acknowledged, and failed to obtain meaningful informed consent.”
Worldcoin’s response to these concerns? “Privacy is a fundamental human right… We don’t want to know who you are, just that you are unique.”
The startup has raised around $250 million from backers including Andreessen Horowitz and Reid Hoffman. Altman is hopeful that new token-buyers will finance the project. More at CoinDesk and TechCrunch
Disgruntled Investor Charged With Kidnapping “Crypto King”
Toronto Police Service has arrested four men linked to the kidnapping of a self-proclaimed “Crypto King” Aiden Pleterski.
The self-dubbed ‘king’ in question had taken in $41 million from investors. Of this, he invested less than 2% of the funds. He allegedly spent nearly $16 million on luxury travel and cars, including three McLarens, two Lambos, three Audis, two BMWs, and private jet flights.
He was better at spending investors’ money on himself than at investing it. “When the crypto market started to tank in November of 2021, I should have been honest with everybody,” he added. “I lost close to $45 million strictly alone in the crypto market within one month” he said. Pleterski apologised to investors in a video, saying, “I’m sorry, I really am. I didn’t want to, or mean to, ruin anybody’s life…”
The apology would be a good start, except that his own lawyer claims his client was coerced into making some of these admissions by his captors. Despite this, he claims to aim to repay his investors, promising, “I’m going to work for it… until every last soul is paid back.” We’ll see. One of the suspects charged had invested (and then lost) $740,000 in Pleterski’s scheme.
Evidence of crypto usage by ISIS is ‘mounting’, particularly Tether
Crypto, particularly Tether, is increasingly being used to send funds to pro-ISIS networks. Blockchain intelligence firm TRM Labs has published a report linking the use of cryptocurrency, particularly Tether’s USDT on the Tron network to pro-ISIS networks in Tajikistan, Indonesia, and Afghanistan. The report reveals “mounting on-chain evidence” from the past year supporting these allegations. The study cited an instance in Tajikistan where crypto was reportedly used to fund the recruitment of fighters for ISIS’s affiliate in Afghanistan. A fundraising campaign linked to this activity reportedly received “around USD 2 million in USDT” on Tron in 2022. This aligns with an earlier presentation by Tara Annison, former head of technical crypto advisory at Elliptic, who noted a trend among criminals moving from Bitcoin to stablecoins, with TRON and Tether being popular choices for illicit use.
SEC hints at potential appeal to XRP ruling from Ripple Labs lawsuit
The U.S. SEC is considering lodging an appeal against a recent ruling on the Ripple Labs lawsuit that identified XRP as a non-security for retail investors. Citing a contradiction with “fundamental securities laws principles” like the Howey Test, the SEC voiced its concerns in an unrelated lawsuit involving Terraform Labs. Terraform Labs referenced The Ripple Labs ruling in their defence.
The SEC complained, “Respectfully, those portions of Ripple were wrongly decided, and this Court should not follow them. SEC staff is considering the various available avenues for further review and intends to recommend that the SEC seek such review.”
Much of the rest of the industry doesn’t seem to agree… The move could have implications for future cryptocurrency regulations, as will the outcome of the ruling.
Nasdaq Halts Plans for US Digital Asset Custodian Business
Nasdaq is putting its plans to launch a digital asset custodian business in the U.S on hold, blaming the all-too-frequent changes in the regulatory landscape.
“The regulatory environment is fast changing”… “It’s at least trying to evolve into something that’s understandable. Let’s see how it does over the next several months and maybe years.”
“As we looked at the opportunity set of just being a custodian — nothing else, just that one segment of the business — the fundamental business opportunity changed over the last several months and then the regulatory overlay and overhang changed as well”
“And I think that just made us decide that it’s not the right time for us to enter that business.” – Adena Friedman, CEO of Nasdaq
Friedman further noted the ambiguity surrounding the digital asset custodian business. The company will continue to develop software solutions for the global digital asset industry.